What Are The Options?

If you’re like most Americans, and can’t fund a renovation in cash, your options may include:

1. Personal Loans. One option to fund your home improvement project is with a personal loan. Depending on your history with credit, interest rates on personal loans can range from as low as 2.5% to over 30%! The lower the interest rate you’re able to secure, the more manageable it is for a home improvement project.

The benefit of personal loans is that they’re usually unsecured loans. This means you don’t have to put your home up as collateral, which is necessary with home equity loans.

A downside with these loans is that they usually come with higher interest rates, meaning you’ll pay extra in monthly interest fees. Try to make sure you have a fixed interest rate if you do choose this option.

What makes this option interesting is that as long as you pay the minimum payment on your account monthly, you’ll avoid paying interest on your credit card balance. That means your card can be used as an interest-free loan over the course of the 0% APR period.

For example, say you rack up $3,000 in debt renovating your basement. If you used a credit card with a 0% interest period for 12 months, you could make monthly payments of $250 to pay off the debt completely by the end of your introductory period without paying a cent in interest.

Just always remember to pay off your balance in full by the end of the introductory period. After that period, the regular variable APR starts, which can result in expensive interest.

3. Home Equity Loan. A home equity loan is a second mortgage for a fixed amount of money. This type of loan is secured by your home. The loan is repaid through equal monthly payments over a fixed term, just like a regular mortgage.

However, if you can’t pay the loan as agreed, your lender can foreclose your home.

With these types of loans, lenders usually limit the total amount to 85% of the value of your home. Home equity loans have fixed interest rates, meaning the rates stay the same over the life of the loan. Your monthly payments never change.

Remember: Use Funds Responsibly

No matter which option you decide may help with your home renovations, make sure you’re borrowing money with discipline. Interest and late fees can add up quickly, creating an endless pit of debt.

In general, if you’re using a card without a 0% introductory APR, make sure any credit card balance is paid off both on time and in full by your due date to avoid interest.

If you’re currently carrying any debt, make it your top priority to get it eliminated as fast as possible.

Backed by his 40-year remodeling career, Danny served as the home improvement expert for CBS’s The Early Show and The Weather Channel for more than a decade. His extensive hands-on experience and understanding of the industry make him the go-to source for all things having to do with the home – from advice on simple repairs, to complete remodels, to helping homeowners prepare their homes for extreme weather and seasons.